Justice Department Backs Legal Effort Against California’s State Retirement Plan

The U.S. Department of Justice is backing a lawsuit that seeks to invalidate California’s state retirement plan, taking aim at the growing number of states sponsoring retirement savings plans for people who lack access to one at work. In a brief filed in federal court on Sept. 13, the agency argues that California’s program, called CalSavers, violates the federal Employee Retirement Income Security Act of 1974, which governs 401(k)-style plans. Among other things, the Justice Department argues that state-sponsored plans would create “a patchwork of different state laws,” which is “exactly the kind of disuniformity that Erisa was designed to avoid.”

California estimates that 7.5 million state residents who lack a retirement savings plan at work are eligible for the program. It requires employers with five or more workers that don’t offer a plan to participate. Launched in July, the program has $650,000 in assets from 2,150 workers, with several thousand more opening accounts, said

Katie Selenski,

executive director of California’s Secure Choice Retirement Savings Investment Board, which runs the program. Of the estimated 250,000 companies in the state without a retirement savings plan, about 500 are currently signing up and 70 have begun making payroll contributions to individual retirement accounts, she said. Workers pay for all contributions and can choose to opt out. Employers are barred from making matching or other contributions to the accounts. The program imposes staggered deadlines for employers that don’t offer plans to join over the next three years. Currently, California, Oregon and Illinois are enrolling workers in their plans. Other states, including New York, Vermont, Maryland, and Connecticut, are developing similar programs. The Justice Department argues the federal government “has a heightened interest” in finding the California state law that established CalSavers in violation of federal law, because it “is among the first of a number of similar state” laws “to be challenged” in the courts. CalSavers’ legal woes began in 2018, when the nonprofit Howard Jarvis Taxpayers Association filed suit in U.S. District Court for the Eastern District of California, seeking to invalidate the program. The association argues that states can’t impose a retirement plan requirement since such plans are already regulated under Erisa. In March, U.S. District Judge Morrison England Jr. dismissed the lawsuit but let the Taxpayers Association amend its complaint.

Jon Coupal,

president of the Taxpayers Association, said the organization asked the Justice Department to support its lawsuit. Mr. Coupal said he expects a ruling this fall. Observers expect the losing side to appeal. Ms. Selenski said those behind the program “remain confident in the court’s prior ruling in favor of CalSavers.” The Justice Department declined to comment. CalSavers is separate from the California Public Employees’ Retirement System, which provides pensions for California state employees. Proponents of state-run retirement programs say they are concerned about the estimated 42% of private-sector workers who don’t have access to a workplace retirement-savings plan, many of whom don’t save at all. State legislators also are trying to save taxpayers money over the long term by reducing retirees’ reliance on public-assistance programs, including Medicaid. Write to Anne Tergesen at anne.tergesen@wsj.com

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